Banks Throttle Back Slightly On The Dollar, As Spiral Upwads Continues

It’s been a frantic week, a financial rollercoaster for the dollar exchange. In the week, the foreign currency appreciated by ¢18.39, opening last Friday at ¢601.25 and closing yesterday at ¢619.64 in the wholesale market.

At some banks we saw a high of ¢630 colones for the sell as the reference rate by the Banco Central de Costa Rica (BCCR) – Central Bank – continued on its spiral upwards.

This morning, Saturday, November 3, 2018, the Central Bank reference rate is ¢613.16 for the buy and ¢622.08 for the sell.

At the banks, the rate buy rate this morning ranges from ¢612 to ¢614, and the sell between ¢625 and ¢627.

Vidal Villalobos, economic adviser to Grupo Prival, speaking to La Nacion said that the rapid increase in the price of the dollar during this week caused people and companies to get scared and go out to buy the foreign currency.

“There is a component of fear and protection at this time in the foreign exchange market,” emphasized Villalobos.

The economist stressed that the relevant actor that presses the price of the dollar is the imbalance in the Government’s finances, which forces the Ministry of Finance to obtain, from the Central Bank, large amounts of foreign currency to pay its bills.

Central Bank Intervention

During this week, the Central Bank was the protagonist with its interventions in the wholesale market, providing 61% of the dollars that were negotiated. BCCR statistics show that US$74.4 million were traded, of which the bank sold US$45.5 million.

“Yes it has been intervening strongly to mitigate the impact on the exchange rate if the intervention had not occurred, the exchange rate would be much higher,” explained Rodrigo Cubero, president of the Central Bank.

Cubero explained that every day they have intervened either by selling currency in the Monex or the non-banking public sector, mainly the Ministry of Finance.

In the last six months, the Central Bank used US$1.6 billion of its reserves to smooth the movement of the exchange rate and make it less abrupt.

While tension with the appreciation of the dollar (or devaluation of the Colon) is strong, the Central Bank also announced on Thursday, November 1, the increase in its monetary policy rates and the rates of its term savings instruments.

With these measures, the Central Bank seeks to curb inflation and encourage people to save in colones and thus reduce the pressure on the exchange rate.

A crazy week

For William Porras, an economist at Ecoanálisis, this week the private sector “went crazy” to obtain the foreign currency (US dollar) and pushed up the exchange rate.

“The Ministry of Finance has needed reseve dollars of the Central Bank and the entity has not had the capacity to satisfy the demand of the private sector. Hacienda and Recope will always have dollars, but in the case of a private company that uncertainty generates speculation,” said Porras.

The economist pointed out that the volumes of currencies traded, both in the wholesale market and in the banks are low, which reflects the uncertainty of the market.

“People came out (this week) to buy and those who had dollars decided not to sell, to wait for the exchange rate to reach its highest level,” Porras said.

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